Market Comment – Case Study – When Auctions Go Bad

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What do you do when the auctioneer brings down the hammer and you have the highest bid? You have bought the property. You can bask in the applause from the crowd. You can begin celebrating and sign the papers. There are the formalities of documentation but usually these take only a few minutes.

The auctioneers team rushes the winner inside, takes their deposit writes up the contracts and has the buyer sign them. The agents then have the vendor sign and the contract is complete. The SOLD sticker goes up and the sale of the property is over.

On a slightly overcast day in April, the JPP team arrives in Glen Waverley to assist one of our clients to purchase their dream home. We have analysed the property, we have negotiated the terms we will sign under if successful and we are prepared to bid. While we were representing the purchaser, the vendor was being represented by a “Vendor’s Advocate”

The auction begins with the usual ringing of the bell and then the auctioneer begins his show. He reads from the rules of auctions, he tells us a bit about the vendor’s statement and the contract and he also espouses how sensational the area and this particular house is. So far no different to the thousand or so other auctions I have attended.

The bidding begins and within a few minutes of myself and one other person bidding at $627,500 I asked if the property is on the market. The auctioneer gave me a usual deflection line and did not answer the question in either the positive or the negative. I did not put in a further bid and waited. The auctioneer, with no further bidding went inside to consult the vendor. When he came outside he asked the other bidder in the audience to confirm their bid at $627,500. They did and he turned to me and announced the property was on the market. If there was no further bidding the property would be sold.

I bid and so did the other interested party. We fought out the auction and finally I was successful with a bid of $670,000. In fact it was my very last bid as we had agreed with our client this was a fair and reasonable price to pay for the property. We had already done a 20 page report and this is where comparable sales put the price point for this particular property.

When we began to move into the house the agent came up to us and asked if we would mind filling in the paperwork around the corner at his office. It would be more comfortable and easier. Alarm bells were going off in my mind and that of my colleagues. This was most unusual but not unprecedented.

Antony accompanied our client to the agent’s office and filled in the contract whilst we waited for the Vendor Advocate to bring the vendor up to the office. Subsequently, the Vendor Advocate arrived alone, but with a valuation certificate. He explained to Antony that his client was unaware their property had been put on the market. He explained she actually wanted $690,000 as this is what the valuation certificate stated and he put it on the table for all of us to see. Both the sales agent and Antony were flabbergasted. This Vendor Advocate had come into the office without the vendor and intimated that to complete the purchase on the property we would need to pay $690,000. Antony immediately asked him to put the paperwork away and demanded they all go back to the vendors house to finalise the contract by getting the vendors signatures. He proceeded, with our client, and the Vendors Advocate in tow back to the property.

Whilst this was going on we had already sought and received legal advice. We had made it very clear to both agents that they had a legal and moral responsibility to organise the sale at the price that was agreed at the auction. The selling agent we had been dealing with throughout the campaign was absolutely fantastic. At no stage did he think anything else but get the deal done at the agreed price.

After three and half hours of further negotiation, threats and discussion we finally received signed contracts. Our client and her daughter, although quite shaken, were ecstatic. Without a buyer advocate assisting I believe the deal would either not have happened or the purchaser may have been persuaded to pay more than the price bid under the hammer or worse still, ended up in a lengthy court battle. By remaining focused and calm we were able to secure the property for the agreed price of $670,000, for our client.

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.